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A diversifying opportunity: The case for small cap investing

In the evolving landscape of investment opportunities, small-cap equities stand out for their potential to enhance and diversify portfolios. As global economic and supply chain dynamics shift, smaller companies offer investors unique growth prospects and greater prospects for diversification than during previous market cycles.

Apr 2, 2025
5 minute read

Key takeaways:

  • Diversification and growth potential: An allocation to small-cap equities can enhance a portfolio’s diversification, tapping into a vast pool of growth opportunities in major markets like the US, Europe, and Japan.
  • Structural advantages: Small caps offer M&A target benefits, lower concentration risks, and are often under-researched, leading to potential mispricing opportunities that can benefit informed investors.
  • Resilience and valuation appeal: Small caps are well positioned to capitalise on the ongoing shifts in global supply chains, including trends towards near-shoring, due to their agility and localised market focus.

Smaller companies (small caps) are a segment of the global financial market comprising firms with a market capitalisation typically between USD$300 million and USD$2 billion. They are represented across a wide range of industries and can be innovative and agile, adapting quickly to market changes.

By focusing on growth through reinvesting profits, smaller companies can offer higher returns over time and diversification benefits for investors relative to their larger peers, although they also require careful research to consider and address any associated risks.

This paper explores the strategic benefits of an allocation to small-cap equities, highlighting their responsiveness to supply chain changes and their capacity to capitalise on emerging market trends.

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All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information.

Apr 2, 2025
5 minute read

Key takeaways:

  • Diversification and growth potential: An allocation to small-cap equities can enhance a portfolio’s diversification, tapping into a vast pool of growth opportunities in major markets like the US, Europe, and Japan.
  • Structural advantages: Small caps offer M&A target benefits, lower concentration risks, and are often under-researched, leading to potential mispricing opportunities that can benefit informed investors.
  • Resilience and valuation appeal: Small caps are well positioned to capitalise on the ongoing shifts in global supply chains, including trends towards near-shoring, due to their agility and localised market focus.